LDR at Five Major Banks Hits Two-Year Low... Loan Growth Slows, Loan-Deposit Rate Gap Widens

Deposits Rise While Lending Stagnates
Impact of Tighter Household Loan Regulations and Sluggish Domestic Demand

In the first quarter of this year, the loan-to-deposit ratio (LDR) of major commercial banks fell to its lowest level in two years. Despite a sharp rise in the stock market, the preference for safe assets due to the Middle East crisis led to continued growth in deposits. However, heightened regulations on household loans and sluggish domestic demand meant that lending did not increase significantly.

According to the financial sector on May 3, the average LDR of the five major commercial banks—KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH Nonghyup Bank—stood at 96% as of the end of the first quarter of this year. This marks the lowest level since the first quarter of 2024, when the ratio was 95.4%.

By bank, Shinhan Bank recorded the lowest LDR at 93.6%, followed by NH Nonghyup Bank at 93.9%, Woori Bank at 97.1%, Hana Bank at 97.4%, and KB Kookmin Bank at 97.9%.

The average LDR for these banks rose from 96.6% at the end of the first quarter last year to 97.0% at the end of the second quarter, then shifted downward to 96.3% at the end of the third quarter, 96.2% at the end of the fourth quarter, and further to 96% in the first quarter of this year.

This trend reflects a situation where deposits increased, but loans did not grow at the same pace. The total outstanding won-denominated deposits at the five major banks reached 1,765 trillion and 82.3 billion won as of the end of the first quarter this year, up 4.6% year-on-year, whereas total loans stood at 1,618 trillion and 515.9 billion won, rising only 4.1% in the same period.

The slowdown in loan growth was particularly pronounced in household loans. The outstanding balance of household loans at the five major banks was 765 trillion and 825.9 billion won at the end of the first quarter, up 3.7% year-on-year, which is lower than the overall loan growth rate of 4.1%.

The outstanding balance of corporate loans at these banks reached 869 trillion and 310.9 billion won at the end of the first quarter, up 4.3% from a year earlier, but this was not enough to offset the sluggishness in household loans. Among corporate loans, loans to individual business owners rose only 1.3% year-on-year. This is interpreted as a reflection of the so-called "K-shaped polarization," where the export sector, such as semiconductors, is performing well, while the recovery in domestic demand remains delayed.

As the LDR drops, banks have less incentive to raise deposit rates, which is widening the gap between loan and deposit rates (the loan-deposit interest rate spread). According to the Korea Federation of Banks, the average loan-deposit interest rate spread for household loans (excluding policy-based financial products for low-income households) at the five major banks was 1.512 percentage points at the end of April, up 0.04 percentage points from 1.472 percentage points a year earlier. This is the highest level since the loan-deposit interest rate spread began to be disclosed in July 2022.

This content was produced with the assistance of AI translation services.